general session: washington update sunday, april 28, 2013 · ("iips"). neither iliac nor...

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General Session: Washington Update Sunday, April 28, 2013 Robert M. Kaplan, CFP, APA, CPC, QPA

VP, National Training Consultant, ING

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Important Information

Any insurance products, annuities and funding agreements that

may have been purchased are sold as securities and are

issued by ING Life Insurance and Annuity Company ("ILIAC").

Fixed annuities are issued by ILIAC. ILIAC is solely responsible

for meeting its obligations. Plan administrative services are

provided by ILIAC or ING Institutional Plan Services, LLC

("IIPS"). Neither ILIAC nor IIPS engage in the sale or

solicitation of securities. All companies are members of the ING

family of companies. Securities distributed by ING Financial

Advisers, LLC (member SIPC) or other broker-dealers with

which it has a selling agreement.

For financial professional training use only. C11-11-21-015 (02/12) 2

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• Roth Conversions

• 2013 Tax Reform

• Bills to Be Reintroduced??

• IRS Pending Initiatives

• DoL Pending Initiatives

• Fee Disclosure Ongoing

Issues

• Questions?

Agenda

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• Addressed the dreaded F.C. (Fiscal Cliff)

• Affects high income earners ($400,000 individual or $450,000 married both indexed for inflation)

• Income tax rate goes from 35% to

39.6%

• Capital gains rate goes from 15% to 20%

• Dividend rate goes from 15% to 20%

American Taxpayer Relief Act of 2012

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• Phase out of tax deductions for individuals earning over $250,000 or joint filers over $300,000 (both indexed for inflation) were reinstated

• Estate tax increased to 40% for amounts over $5,000,000


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• Bad news – the Wall Street Journal (January 1 edition) referred to ATRA as the “largest tax increase from one year to the next – ever!”


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• Good news – Dave Camp (R) Chair of the House Ways and Means Committee referred to it as the “largest tax cut – ever” (January 1st edition of the Washington Post) • It is possible he compared it to

what the tax increase would have been without ATRA and if all the Bush tax cuts expired

• He also stated on House floor on January 2nd that these cuts were permanent!! (until the next law change)


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• Will the incentives for qualified retirement plans be increased if no other changes take place?

• Current deductions

• Using the Roth for tax diversification

• Estate Planning

• How will employers deal with their overall benefits budget as the Affordable Care Act (ACA) kicks in


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• Both McConnell and Boehner stated that “we are done with tax reform and now on to spending cuts”

• Implications for retirement plans – we will discuss in a few minutes


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• Roth Conversions • Literally a last minute addition

(Section 902 of a Bill that had 903 sections)

Most important thing we know is that we need guidance from the Treasury and IRS


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• Roth Conversions – What We Know • Applies to plans that offer a Roth

deferral feature (401(k), 403(b) or governmental 457(b)

• Optional

• Vested amounts

• All sources of funds (not just those available for distribution)

• Plan will have to be amended to reflect provisions


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• Roth Conversions – What We Don’t Know • Timing of amendment (since

voluntary you would think last day of plan year implemented)

• When does the 5 year clock start (remember a conversion is not a contribution)


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• Roth Conversions – Communication Issues • Sources (if limited)

• How often (if limited)

• Conversions do not create a distributable event that otherwise does not occur – do you have the money outside the plan to pay taxes


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• Roth Conversions – Impact

• Participants like options (even if they do not use them)

• Gives advisors chance to talk tax diversification (and demonstrate their value)

• Any tax changes cause some participants to re-think using the Roth

• So be ready

• Session – Wednesday at 8:15 with Bill Grossman


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• Anticipation of Tax Reform in 2013 • Need to address the debt ceiling

• American Taxpayer Relief Act of 2012 did not address spending

• Look for “Revenue Enhancement” to be a theme for 2013 • Translation is higher taxes

2013 Tax Reform

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• President’s 2014 Budget Proposal – April

• Effective in 2014 • Eliminate ESOP Dividend deduction for Large C Corps

• Create Auto IRA in 2015 (Roth is default)

• 28% limit on itemized deductions (impact those in a higher tax bracket)

• Eliminate “stretch IRAs” for non-spouses – must distribute in 5 years

• IRS can mandate additional Form 5500 data be sent electronically

• Eliminate RMDs for accountholders with less than $75,000

• Allow 60 day rollovers by non-spouses (meant to align rollover rules)

• Eliminate contributions for those who have accumulated enough in IRAs,

DBs and DCs to equal annual DB payout of $205,000.

• Tested annually so contributions may recommence due to limit increase or

investment losses

2013 Tax Reform

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• Retirement Plan Deductions that

have been discussed in the past: • Limit DC contributions

• Lower elective deferrals

• Eliminate catch-ups

• Lower considered compensation

• Eliminate cross-testing

• Replace pre-tax system with tax credits

• Limit total deductions

• Note that these are all incentives for employers

to sponsor a plan

• Everything tax related is “on the

table”

• Our best defense – Satisfied

participants!

2013 Tax Reform – Other Proposals

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• Moving Ahead for Progress in

the 21st Century or MAP 21

• A.K.A “The Highway Bill”

• Adjusted interest rates for DB

plans with abnormal results

(you better see an actuary for

details instead of me)

• New PBGC premiums (higher

of course) but at least they do

not get to set their own (which

they wanted)

MAP 21

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• Automatic Enrollment IRA

• Mandate businesses with more

than 10 employees to offer a

payroll withholding IRA

• Would expand coverage

• Was introduced to House in

2012 by Richard Neal (D-Ma)

– HR 4049

• Has been in President’s

budget the last 3 years

Bills to be Reintroduced??

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Lifetime Income Disclosure Act

• Monthly lifetime income amount at

Normal Retirement Date (NRD)

reported on statement .

• No requirement for actual annuities.

• Not controversial because no taxes

involved

• Idea is to educate participants about

a theoretical monthly amount at

retirement (or budgeting) and to

encourage them to save more

• Introduced in 2012 by Senators Kohl,

Bingaman and Isakson

Bills to be Reintroduced??

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Shrinking Emergency Account

Losses in 401(k) Savings Act

of 2013

• Eliminate 6 month suspension

after a hardship withdrawal is

taken

• Allow loan repayments to IRA

for up to 6 months after

termination

Bills that was Reintroduced

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• Several states are getting or

want to get into the retirement

administration business

• Massachusetts – small non –

profit 403(b)s

• Connecticut – 2013 Bill to limit

fees in retirement plans (50% ??)

• California – SB 1234 State based

Auto-Savings Plans (similar to

Auto IRA) – passed in August,

2012 – needs to be implemented

State Initiatives to Keep an eye on in 2013

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• Updated EPCRS (Correction

Program) – 2013-12 released

late December • “Perfect is not lovable” but it may be

a good idea in retirement plans

• Session on this – Monday at

10:30 a.m.

• 403(b) arrangements

• Matching corrections do not have to be

fully vested

• Corrections for missed deferrals cannot

be from forfeitures

IRS Initiatives

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• 401(k) Questionnaire

• 1200 Plans selected (98%

response rate)

• Costly to respond

• Will we see more of these?

• Session – Tuesday at 1:15

with Rich Hochman

IRS Initiatives

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• QLAC Proposed Regulations

• Qualified Lifetime Annuity

Contracts

• In plan annuity purchased at

age 85

• Premiums not included as part of

RMD calculation

• Lesser of $100,000 or 25% of

account balance

• Decumulation – see next slide

IRS Initiatives

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• Regulators starting to look at

decumulation issues

• As we stated – Legislation to

provide “annuity value” on DC

statements

• QLAC Regulations

• DoL RFI several years ago to see

what products are being used

and why more participants are

not using them

• DoL holding public hearings on

Benefit Statement information

• Trend is on payouts – time to

learn the products

Decumulation

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• Rollovers into plans – do they

need to put rules in place to

make it easier • Increase portability

• Make it easier for participants

• Not on the formal work list but industry

organizations were questioned by IRS on

practices

IRS Initiatives

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• Multiple Employer Plan

Advisory Opinion 2012- 4A • “Open MEPs” treated as separate

employers for filing, audit and fiduciary

purposes

• Can still be combined for investment

purposes

• Did not address the level of fiduciary

responsibility for employer in an

association or related MEP

• Richard Neal (D) Mass – might propose

bill to allow “Open MEPs” because it

might make it easier to adopt plans and

increase coverage

DoL Initiatives

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• Multiple Employer Plan

Advisory Opinion 2012- 4A • What do we do about the plans that

we filed for years prior to this Opinion

• Still waiting for clear guidance

• What we really need is coordination

between the IRS rules and DoL rules

• Session at 12:45 on Monday with

Derrin Watson

DoL Initiatives

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• QDIA and Target Date

funds Proposed

Regulations (waiting for

Final) – on work plan for

November 2013

• Require: • Additional Disclosures

• Clearer labeling of funds

• Clearer marketing material

• Funds are not guaranteed and can lose

value

DoL Initiatives

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• Establish an objective process for comparing and

selecting TDFs Gather and evaluate information

• Establish a process for periodic review of TDFs

ERISA Fiduciary requirement

• Fund may need to be replaced if there are significant

changes to the fund or the plan’s objectives

• Understand the TDFs investments and asset

allocation “At retirement” - Glide path most

conservative at target retirement date

• “Through retirement” - Glide path most conservative

after target

Target Date Fund Selection

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• Review fund’s fees and investment expenses

Small differences can have a significant impact

on long term savings

• Develop effective employee communications

Employees need the same information that plan

fiduciaries do

• Take advantage of available sources of

information to evaluate the TDFs and

recommendations you received No sources

named

• Document the selection and review process

Target Date Fund Selection

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• DoL announced it will

reintroduce Investment

Manager Fiduciary

Regulations July, 2013 (based

on DoL work plan)

• Would expand who is a

fiduciary to those who give

recommendations (even if only

to one participant)

• Will it include recommendation

to roll to an IRA???

DoL Initiatives

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• Note: This is for Investment

Manger and does not address

Plan Administrator Fiduciary

Services 3(16)

• Growing trend in the

marketplace

DoL Initiatives

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• Implications?

• Less financial advisors working

on plans?

• More familiar with retirement

plans?

• Some B/Ds limiting who can work

on plans (creating groups of

experienced advisors)

DoL Initiatives

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• Market Place Currently

• Advisors who can be Fiduciaries

• Advisors who partner with firms

that offer Fiduciary services

• Where do you fit in?

DoL Initiatives

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• Failure to Provide on a timely

basis

• Prohibited transaction

• Limited relief for the plan if

• Written request upon realization

of data needed

• 90 day deadline

• Report to DoL if not received

• Determine whether to continue

relationship

• Report it on Form 5500!!!!

Fee Disclosure Ongoing Issues– Failure to Provide 408(b)(2) Notice

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408(b)(2) - Plan Sponsor Responsibilities

• Determine that fees paid out of plan

assets are reasonable (ERISA

requirement is nothing new) • Benchmarking

• Comparison bids

• Does plan have practices and

procedures in place (it is all about

process)

• Documentation of all fiduciary decisions

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• Annual – what might be

charged • August 30, 2012 did not bring a lot of

participant response

• Next disclosures due no later than

August, 2013 (or if earlier, within 12

months of the first set)

• Quarterly – what was charged • Seems like the reaction from participants

was not immediate and vocal

• Will it, however, lead to legal action

• Sessions – today at 4:15 Bruce

Ashton and Roundtable discussions

Monday and Tuesday

Fee Disclosure Ongoing Issues – Participant 404(a)(5)

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• Brokerage Accounts or

Windows

• DoL will be concerned if there

are no designated investment

alternatives in plans – how will

sponsor be meeting their

fiduciary duty??

• Anticipate further guidance by

DoL on this

Fee Disclosure Ongoing Issues – Participant 404(a)(5)

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Questions

• I will be happy to

answer any questions

that you may have

• Thank You

general session: washington update sunday, april 28, 2013 · ("iips"). neither iliac nor...

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